Meelis Milder: Baltika Group needs to change its business model radically
“Baltika Group needs to change radically its action and financing plan,” said Meelis Milder, Baltika Group’s Chairman of the Management Board, while commenting on the loss-making year of the company. “If our former plan was based on international growth, we now need to focus on simplifying our business processes and sharply decreasing our operating expenses due to the decreased sales caused by changes in the business environment of the fashion industry and the unexpectedly negative financial results of most of our franchise partners,” added Milder.
According to Milder, the new action plan is based on the strategy approved in the middle of last year, but the focus is on decreasing operating expenses and reacting faster to changes in the markets, which, in turn, should improve the quantity and structure of our stock and the collections’ compatibility with the consumers’ expectations. “We are currently negotiating financing with major shareholders and the Members of the Supervisory Board; therefore we can give details about future steps in the coming weeks when strategic decisions have been made,” noted the company’s director.
Today Baltika Group announced to the Stock Exchange that the net loss of the fourth quarter was 1.5 million euros and that the net loss of the twelve months was 3.1 million euros. “The company’s net profit in the fourth quarter was 133 thousand euros, but due to extraordinary expenses related to allowance for impairment of receivables from the Eastern European franchise partners, the net loss of the quarter turned out to be 1.5 million euros,” said Milder.
2018’s loss is attributable to the change of the cooperation agreement with the department store chain in Germany and Central Europe, Peek & Cloppenburg, in this autumn, according to which Monton collections are no longer sold in most department stores in Germany; and also to increased distribution expenses in connection to entering the Finnish retail market. “Also, as the complex economic and political situation in Ukraine, Belarus, and Russia has caused a significant decrease in sales volumes and solvency of Baltika’s franchise partners on these markets, we were forced to terminate franchise agreements before the end of their period of validity with partners in Belarus and Ukraine in the first quarter of 2019. Cooperation with Russian franchise partners will continue, but on a smaller scale,” said Milder. He added that the Baltic retail market is more resistant to decreased consumption: “We see a more positive sales trend here, particularly for Monton and Mosaic women’s collections.”
According to Baltika Group’s Chairman of the Management Board, future changes in the brand portfolio are not out of the question either. “We will definitely base our decisions on which brand’s collections are most loved by the customers. The gross profit earned from the women’s collections of our brand portfolio increased in comparison to the previous year, and Monton women’s collection contributed the most to the improvement. Our premium brand Ivo Nikkolo also showed good results in the fourth quarter,” said Milder.
He added that another positive development is the 16% revenue increase of Balika Group’s e-store Andmorefashion.com. “If we look at the fourth quarter, the e-store’s revenue increased 10% in comparison to the same period previous year, and 37% of the total sales was Monton whose revenue increased 11% in comparison to the previous year,” noted the head of the company.